It is well known in investment circles that far too many people “buy at the top and sell at the bottom”, meaning that investors are sucked in by investment success stories and shy away from poor performers.

Stock market history is littered with stories of ‘penny shares’ which start to come into fashion on the back of one or two well-placed rumours or positive speculation. Initial success then gets more widely noticed, helped by an escalating share price. More and more people jump on the bandwagon, pushing up demand far higher than the supply of existing shareholders willing to sell. And so the price keeps on going up, well beyond its financial credentials deserve. Occasionally a near-frenzy of buying pressure develops until, one day…….the share runs out of steam. Possible only gradually at first, losing a few pence here and a few pence there. A few more sellers appear, taking their profits whilst they can. No real harm done to the share price, though, as there will still be plenty of buyers who haven’t realised that the party is over. More and more sellers drive the price further down but hopeful buyers keep coming, until…..the true worth of the share is realised and the share price collapses. All those buying near the top of that share price roller-coaster lose almost everything.

There’s very little difference between stories like this, with individual share prices, and investors buying at the top of a cycle in asset classes other than equities, such as property and fixed interest investments. And then they sell at the bottom, heartily sick of the losses they have made.

It’s all a matter of psychology and human behaviour, apparently: buying at the top and selling at the bottom.

Far better to buy at the bottom and sell at the top, but that’s much easier said than done, of course. Nonetheless, certain core principles and strategies can be used to attempt success at buying when assets are ‘just coming off the bottom’ and selling ‘just below the top’. Still not easy, but at the very least it pays to avoid obvious mistakes.

How?